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International Journal of Management Reviews (2008)doi: 10.1111/j.1468-2370.2008.00234.x

International Journal of Management Reviews Volume 10 Issue 4 pp. 399–423 399

© 2008 The AuthorJournal compilation © 2008 Blackwell Publishing Ltd and British Academy of Management. Published by Blackwell Publishing Ltd,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Blackwell Publishing LtdOxford, UKIJMRInternational Journal of Management Reviews1460-85451468-2370© Blackwell Publishing Ltd 2008XXXORIGINAL ARTICLESEvolutionary approach to study of entrepreneurshipXX

A review of the evolutionary approach to the study of entrepreneurshipDermot Breslin1

A number of more contextual and process-oriented approaches have been followed recentlyin entrepreneurial research, including the cognitive approach, the learning approach andthe evolutionary approach. This paper reviews the evolutionary approach to the study ofentrepreneurship. This includes an overview of evolutionary theory and the argumentsbehind its relevance to the study of socio-economics systems, as well as a review of theapplication of evolutionary theory to the study of entrepreneurship at both the populationlevel (population ecology) and the organizational level (strategic choice). The reconciliationof these two perspectives is discussed, and comparisons are made with the cognition-basedand learning-based approaches. It is argued in this paper that an evolutionary approach tothe study of entrepreneurship leads to more theory-driven research with a strong focus onprocess and context. In addition, it offers more than both the cognition-based and learning-based approaches because it allows for multi-level analyses of the new venture creationprocess, encompassing both the population ecology (population level) and strategic choice(organizational level) perspective, and the resultant interactions between both hierarchies,giving valuable insight into the same overall evolutionary process.

Introduction

Since Low and MacMillan (1988) outlined thefuture challenges for entrepreneurship research,the field has moved in a number of directions.Low and MacMillan (1988, 141) pointed outthat early entrepreneurship research had beenexploratory and of the ‘census-taking’ type,and stated that the challenge for future entre-preneurship research was to continue to move

towards explaining ‘rather than merely docu-menting the entrepreneurial phenomenon’(Low and MacMillan 1988, 157). They calledfor the development of more rigorous modelsof the entrepreneurial process, the need topursue more causality and theory-driven researchand for research to have a more contextualand process-oriented focus. One such researchdirection in entrepreneurship which has followedthis call has been the evolutionary approach.

Evolutionary approach to study of entrepreneurship

400 © 2008 The AuthorJournal compilation © 2008 Blackwell Publishing Ltd and British Academy of Management

Entrepreneurship can be defined in a numberof ways. From an economic perspective,entrepreneurs can be defined in terms of the effectthey have on the population of organizationswithin an industry. Thus, the entrepreneurmay be an innovator creating uncertainty anddisrupting market equilibrium (Schumpeter1934) or someone who exploits and eliminatesentrepreneurial errors and moves the markettowards equilibrium in a dynamic competitiveprocess (Kirzner 1973). Entrepreneurial alert-ness refers to the entrepreneur’s ability todiscover these opportunities (Kirzner 1997),and a further definition focuses on the natureof this discovery and exploitation of opportu-nities. In this manner, the field can be definedas the study of how, by whom and with whateffects opportunities are discovered and explo-ited (Shane and Venkataraman 2000). In thislatter case, the focus is on the entrepreneur,their possession of the prior informationnecessary to identify an opportunity, and thecognitive properties necessary to value it.Continuing this micro-perspective, entrepre-neurship can be defined as the process bywhich new organization come into existence(Gartner 1989; Vesper 1982), with a focus onwhat entrepreneurs do in this creation process,including entrepreneurial cognition (Baron1998; Busenitz and Barney 1997), entrepre-neurial learning and networks (Gibb 1997).Gartner’s definition could be broadened fur-ther beyond those who have actually created anew venture, to include nascent entrepreneurswho are thinking about starting a new firm(Reynolds 1994). Others have focused on thenetwork of stakeholders involved in the newventure creation and viewed entrepreneurshipas an effectuation process, where the outcomeof the process depends on negotiating a seriesof commitments with a network of contacts(Sarasvathy and Dew 2005). Another possibleinterpretation is that entrepreneurs view theirstart-ups as real options (McGrath 1999), wherea firm’s exit has learning effects enhancing theentrepreneur’s accumulated resource andknowledge base. In the process, they are notdeterred from entering into subsequent entre-

preneurship ventures by terminating previousbusinesses. The difficulty with these variousdefinitions is that, while they each look atdifferent aspects of entrepreneurship such ascognition, learning and opportunity discovery,and while they study entrepreneurship atdifferent levels of analysis, such as popula-tion versus organizational level, none ofthem captures the overall picture of whatentrepreneurship is (Low and MacMillan1988).

Low and MacMillan (1988) identified twobroad research perspectives in entrepreneur-ship which can be broadly categorized as:

(1) Environmental determinism or the popu-lation ecology perspective: This assumesthat organizations do not adapt to envi-ronmental change and that environmentalselection is the determining factor.

(2) The strategic choice perspective: Thissuggests that ‘success lies in the deci-sions of the individual entrepreneurs whoidentify opportunities, develop strategies,assemble resources and take initiatives’(Low and MacMillan 1988, 142).

These opposing perspectives relate to thesuccess of organizations as being either out ofthe control of the entrepreneur and entirelydetermined by the environment within whichthe company operates or within the control ofthe entrepreneur. The two perspectives of stra-tegic choice and environmental determinismdiffer with respect to their level of analysis. Inthe former, the entrepreneurial venture canadapt to changes in the local environmentwhereas in the latter the focus shifts to entirepopulations of organizations that come and goas industries ‘are born and extinguished’(Astley and Van de Ven 1983, 254). Entrepre-neurial research has focused on either thestrategic choice or environmental determinismperspective, with far less being known abouthow these two interact with each other overtime (Aldrich and Martinez 2001). Indeed,entrepreneurs learn as they create new ventures,adapting their strategies through interaction

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© 2008 The Author 401Journal compilation © 2008 Blackwell Publishing Ltd and British Academy of Management

with the environment (Hrebiniak and Joyce1985), based on feedback from their out-comes. It is argued in this paper that, toprovide the basis for pursuing more theory-driven research (Low and MacMillan 1988),an approach must be adopted that incorporatesboth perspectives and levels of analysis. Indeed,these different perspectives can present ‘dif-ferent pictures of the same phenomenawithout nullifying each other’ (Astley andVan de Ven 1983, 246). One of the mainadvantages of an evolutionary approach isthat it allows the development of theoriesto analyse both levels with the ‘desirabledegree of harmony between the methodologiesemployed and the theories developed’ (Freel1998, 139).

This paper reviews the use of the evolu-tionary approach in both these researchperspectives. First, a broad overview of evolu-tionary theory and the arguments behind itsrelevance to the study of socio-economicssystems is given. This is followed by areview of the evolutionary approach to thestudy of entrepreneurship at both the popu-lation level (population ecology) and theorganizational level (strategic choice). Finally,the reconciliation of these two perspectives isdiscussed, and arguments given in favour ofusing an evolutionary approach to studyingentrepreneurship.

The Evolutionary Approach and Darwinism

The evolutionary approach can be used as thestarting point for the development of a theoryof entrepreneurship. The approach is a ‘systemof loose, but apparently true and heuristicpropositions’ (Langton 1984, 352) which pro-vides a ‘general explanatory framework’ intowhich detailed causal explanations of theevolutionary processes have to be placed(Hodgson and Knudsen 2004, 285). Theactual theory developed will depend onthe level of analysis, either the population(population ecology) or organization (strategicchoice).

Darwinism

Fundamental to understanding the evolu-tionary approach is Darwinism. Darwinismcan be defined as ‘a causal theory of evolutionin complex or organic systems, involving theinheritance of genotypic instructions byindividual units, a variation of genotypes, and aprocess of selection of the consequent pheno-types according to their fitness in the environ-ment’ (Hodgson 2003, 360). In this definition,the genotype is defined as ‘the material inher-ited by an individual from its parents, whichhas the potential to be transmitted to futuregenerations’ (Sammut-Bonnici and Wensley2002, 299). The phenotype is the characteristicsof an organism which are not inherited andcannot be transmitted genetically to subsequentgenerations. To clarify this distinction, anexample of a phenotypic characteristic couldbe a suntan, which is produced in response tothe environment. The underlying ability totan is transmitted in the genotype (Sammut-Bonnici and Wensley 2002). Essentially, evolu-tionary change involves three key processesof variation (of genotypes), selection (of con-sequent phenotype) and retention (of underly-ing genotype).

As outlined by Hodgson (2003), three dif-ferent theoretical positions exist which explainthe mechanism through which characteristicsare inherited. These three positions can bedefined as follows:

(1) Darwinism: ‘a causal theory of evolutionin complex or organic systems, involvingthe inheritance of genotypic instructions byindividual units, a variation of genotypes,and a process of selection of the consequentphenotypes according to their fitness inthe environment’ (Hodgson 2003, 360)

(2) Lamarckism: a doctrine which permitsthe genotype of an individual organismto inherit phenotypic characteristics

(3) Weismannism (or neo-Darwinism): a doct-rine which does not permit the genotypeof an individual organism to inherit pheno-typic characteristics



In neo-Darwinian selection, the informationflow between the genotype and phenotype isstrictly one way from genotype to phenotype,whereas in Lamarckism the flow can be bothways, and genotypes can be modified owing toinformation received from their phenotypes.While Lamarckism is refuted in biology, it isnot in socio-economic systems, as social agentscan ‘modify the underlying codes that enablemeaningful social interaction’ (Knudsen 2002,451), as discussed later. Therefore, while bothLamarckism and neo-Darwinism share acommon causal structure involving variation,selection and retention, the crucial differenceis in the information flow between the geno-type and the phenotype.

Darwin believed that variations do not emergespontaneously without a cause and assertedthat such ‘accidental variations’ (Darwin 1859,209) must be produced by ‘unknown causes’rather than accepting a notion of a spontane-ous, uncaused event (Hodgson 2003). As aresult, Darwinism does not offer a completecausal account of evolution, as Darwin wasunaware of the mechanisms that led to varia-tions in organisms (Darwin 1859). Indeed,Hodgson (2003) argues that Darwin did notrule out the possibility of Lamarckism, becausehe did not have the relevant knowledge of thesemechanisms of variation in organisms. More-over, Hodgson (2003) argues that Lamarckismdepends on Darwinism to explain why organ-isms strive to adapt to their environmentthrough inheritance of phenotypic characteris-tics in the first place. The purposeful nature oforganisms has evolved through natural selec-tion, and Darwinism ‘points to an evolution-ary explanation of the very origin of will ofpurpose itself’. Thus ‘Lamarckism dependson a Darwinian selection mechanism to com-plete its explanation’ (Hodgson 2003, 361).

Darwinism as a Metaphor

One strategy used in the application of anevolutionary approach to studying organiza-tions uses Darwinian concepts by constructinganalogies between the principles of socio-

economic evolution and those of biologicalevolution. This strategy makes organizationalroutines and behaviour analogous to the bio-logical genotypes and phenotypes, respectively(Nelson and Winter 1982). However, Hodgson(2002) argues that there are several reasonswhy the precise mechanisms of socio-economicand biological evolution differ. First, organiza-tions make highly imperfect copies of routines,unlike the high fidelity of genetic reproduction.Secondly, reproduction of routines can occurwithin the life of the firm and does not neces-sarily always involve the death of some unitsof selection. Thirdly, the selection environmentin organizations often changes rapidly comparedwith the more stable epochs in nature. And fin-ally, there is the possibility that a company canacquire a behavioural characteristic within itsroutines. This Lamarckian inheritance of pheno-typic characteristics is largely or completelyexcluded from genetic evolution (Hodgson 2002).Given the lack of comparability between socio-economic and biological evolution, a true ana-logy is not possible, and biological evolutionaryprinciples are used instead as a metaphor.

Universal Darwinism

Another strategy adopted is that of UniversalDarwinism (Dawkins 1983), where Darwinianconcepts are broadened from the domain ofbiology (Lewontin 1970) and applied to allforms and levels of life (Hodgson 2002).Instead of using metaphors, this approachargues that, at a sufficiently general level ofabstraction, a core set of general Darwinianprinciples of variation, selection and retentionapply to all evolving systems (Campbell1965; Hodgson 2003; Hodgson and Knudsen2004). ‘As long as there is a population withimperfect inheritance of their characteristics,and not all of them have the potential tosurvive, then Darwinian evolution will occur’(Hodgson 2002, 270). This will also includethe complex systems in the socio-economicworld. As a consequence, the fundamentalquestion is not the adequacy of biologicalanalogies (Hodgson 2003). However, these

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Darwinian principles need to be elaborated foreach system to provide detailed causal expla-nation of the mechanisms involved (Hodgson2002; Hodgson and Knudsen 2004). UniversalDarwinism upholds that there is a ‘core set ofgeneral Darwinian principles that, along withauxiliary explanations specific to each scien-tific domain, may apply to a wide range ofphenomena’ (Hodgson 2002, 270).

In Universal Darwinism, the terms replicatorand interactor are substituted for the genotypeand phenotype (Dawkins 1976). The replica-tor is thus anything in the universe of whichcopies are made, such as genes in the biolog-ical world. In the Selfish Gene, Dawkins (1976)introduced the idea of memes as replicators,where a meme is defined as a self-replicatingelement of culture, passed on by imitation, suchas ideas, behaviours or skills. Interactors can bedefined as entities that interact as a cohesivewhole with their environment in a way thatcauses differential replication (Hull 1988).Using this generalization, Hull (1988) out-lined selection as a two-step process involvingthe direct replication of an encoded instruc-tion set, and the direct interaction of the entityof interest with the environment in a way thatcauses differential replication.

A frequent objection to the use of Darw-inism in social science is that the principlesexclude the possibility of intentionality (Witt2004). However, as noted above Hodgson(2003) argues that Darwinism does not excludeintentionality, but merely insists that all inten-tions have to be explained by a causal process.‘Intentionality is still active and meaningful,but it too has evolved over millions of years’(Hodgson 2004, 183). Hodgson (2002) arguesthat everything must have a causal explana-tion in scientific terms, and it is still taken forgranted that human intentionality is sufficientto explain human action, without probing thecauses behind the intentions themselves.

Continuity Hypothesis

In Witt’s (2004) continuity hypothesis, he sug-gested that there are several different, domain-

specific realizations of evolutionary processeswith their ontological bases somehow related.He argued that there is a ‘historical, onto-logical continuity in which evolution in natureshaped the ground and defines the constraintsfor the various other forms of cultural evolu-tion’ (Witt 2004, 141). However, the detailedmechanisms and regularities of cultural evolu-tion differ fundamentally from those of naturalevolution and, while Darwinian Theory is suf-ficient to explain the latter, it is not sufficientto explain the former. As Witt (2004) argued,‘the many facets of cultural evolution requireexplanatory theories of their own’ (Witt 2004,141).

Punctuated Equilibrium

Other researchers have described evolutionas a punctuated equilibrium with ‘extendedphases of consistency intermittently disruptedby short surges of new life forms’ (Sammut-Bonnici and Wensley 2002, 203). In this view,change emerges from small groups isolatedfrom the main population who introducechange in a population through new in-novations (Schumpeter 1934; Tushman andAnderson 1986). These new start-ups becomea source of change within the population,counterbalancing the inertia of larger organ-izations. A number of authors argue thatgreater insight into punctuated equilibriumcan be achieved through the study of multi-level evolution in nested hierarchies (Van deVen and Grazman 1999). They argue thatpunctuationists focus primarily on the macrolevel, ignoring the interconnected evolution-ary processes at lower levels (Rosenkopf andNerkar 1999).

Complexity Theory

Finally, complexity theory explains evolution-ary process as one in which ‘organized systemsspontaneously emerge out of chaotic systems’(Sammut-Bonnici and Wensley 2002, 306).Complexity science downplays selection inDarwinian terms (Kauffman 1993). However



as Hodgson (2002) argued, Kauffman doesnot conceive of his theory as an alternative toDarwinism and, once self-organized systemsemerge, natural selection sorts the more adaptedfrom the less. Rather than being an alternativeto Darwinism, ‘self-organization requires it, inorder to determine which self-organized unitshave survival value’ (Hodgson 2002, 265).

McKelvey (2004) argues that evolutionarytheory is inappropriate to studying entrepre-neurship because it focuses on the study ofequilibrium rather than the study of neworder creation. He argues that entrepreneurialresearch needs to be based on pre-equilibriumscience focusing on order-creation, and thatcomplexity science is the preferred platformfor this research. He argues that entrepreneur-ship is about creating blind variation, evolu-tionary theory focuses on what happens afterblind variation has occurred (McKelvey 2004).

While there is overlap between the com-plexity approach and the evolutionary approach,it is beyond the scope of this paper to explorethe different strands of complexity scienceresearch. The remainder of the paper willfocus on the two main streams of applicationof the evolutionary approach using UniversalDarwinism to study entrepreneurship, namelypopulation ecology and strategic choice. How-ever, it should be recognized that complexitytheory can be used alongside evolutionarytheory to develop a model of the detailedcausal mechanisms of variation, selection andretention at the level of the firm. Much of thecriticism raised by McKelvey (2004) is aimedat population ecology as an approach to study-ing entrepreneurship. However, it is arguedin this paper that the ecologist ignores thedetailed process behind new venture creation,because the population is the level of analysisnot the firm. Research needs to describe theprocesses of variation, selection and retentionin new venture creation, including the com-plex interactions between coalitions of actors(Cyert and March 1963; Sarasvathy and Dew2005) with different motives and cognitiveprocesses, resulting in the emergence of sharedmental models (Kim 1993) and routines.

Complexity theory can be used alongside theprinciples of Universal Darwinism to achievethis aim.

Before a review of the population ecologyand strategic choice perspectives can be given,the basic assumptions of the evolutionaryapproach must be outlined. The basic assump-tion underlying the evolutionary approachin socio-economic systems is the notion ofbounded rationality, as decisions are madeunder uncertainty. This bounded rationality ismanifest both in the routines used by indi-viduals which are the outcome of trial anderror experiential learning (Nelson and Winter1982) and in the limited or imperfect cogni-tive representations that actors use to formmental models of their environment (Gavettiand Levinthal 2004) and to consider the pos-sible consequences of the choices they make.These routines and cognitive representationsare the outcome of the evolutionary processesof variation, selection and retention. A keyfeature of the evolutionary approach is inde-terminacy, with outcomes being explainedafter the fact and with human agency beingvery much a part of the explanations of out-comes (Aldrich 1999). In this sense, the futureis an open question, and outcomes can be saidto have occurred because of ‘some priorsequence of events, even though we could nothave foreseen, prior to the fact, that particularsequence unfolding’ (Aldrich 1999, 33).

Population Ecology

Population ecology is one of two perspectiveson entrepreneurial research (Low and Mac-Millan 1988) and it describes evolution at thelevel of the population of organizations. Thispopulation utilizes resources defined within aniche, where each niche is a resource basethat supports a population of organizations ofa given form (Brittain and Freeman 1980).Variations are introduced into the populationsvia new foundings, which if accepted by theenvironment, will increase in number as aresult of replication. As a result the birth-rate of that specific organizational form will

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increase. The essential Darwinian mecha-nisms outlined above of variation, selectionand retention define this evolutionary process.As Hawley (1950) stated, individuals withinthe population are assumed to be of uniformor average type, and are only important in thatthey serve as convenient units in the analysisof a community or population.

Units of Selection

Replicators Before discussing the processesof variation, selection and retention, the unitsof selection, including the replicators andinteractors, must be examined. As outlinedabove, the replicator is something of whichcopies are made, while the interactor is ‘anentity that directly interacts as a cohesivewhole with its environment in such a way thatthis interaction causes replication to be differ-ential’ (Hull 1988, 408). Nelson and Winter(1982) described organizational ‘routines’ asformal and tacitly understood rules of behav-iour which are the building blocks of predict-able patterns of behavior. Warglien (1995)argues that routines are good candidates forreplicators, because they are inheritable bothwithin and between organizations, they aresubject to selection, and they mutate throughevolution or imitation. Using differentterminology, McKelvey (1982) described organ-izational ‘competence elements’ (comps) asreplicators, where comps are ‘the base units ofknowledge and skill that make up what theorganization knows how to do’ (Romanelli1991, 85).

Interactors Aldrich (1999) described thefirm as the interactor, whose organizationalboundaries provide bundles of routines andcompetencies with the shelter to ‘coalesceinto organized action’ (Aldrich 1999, 140).Likewise McKelvey (1982, 192) defined thefirm as the interactor containing ‘polytheticgroups of competences’. Therefore, at the popu-lation level the organization can be seen as theinteractor with environmental change affect-ing similar firms in similar ways. Even if

organizations are viewed as inseparablebundles of routines and competencies, selectionforces will still affect the entire organizationsas a unit (Aldrich 1999).

Variation

Population ecologists assume that firms arestructurally inert and cannot change at thesame rate as environmental change occurs(Hannan and Freeman 1977). If this is thecase, start-ups or foundings are the source ofvariation within populations (Aldrich 1999).Most nascent entrepreneurs start small repro-ducer organizations in established populations,learning vicariously from early successfulfoundings. The pressure to copy establishedorganizational forms and avoid deviance andinnovative risk is increased as more stake-holders become involved in the foundingprocess (Aldrich and Kenworthy 1999). How-ever, mistakes are still made in the reproduc-tion process and, as a result, blind variationsoccur (Aldrich 1999). In addition to this blindvariation introduced by reproducer foundings(Aldrich and Martinez 2001), a minority ofinnovator foundings deliberately depart fromestablished organizational forms and can thustransform an existing population or createa new one (Schumpeter 1934; Tushman andAnderson 1986).

The higher the founding rate within a popu-lation, the greater the chance that variation fromestablished forms will be introduced, where therate of founding refers to the number of organ-izations added to the population in a given unitof time, relative to the number that already exists(Aldrich 1990). The rate of foundings will, inturn, depend on the population density, wheredensity is defined as the total number of organiza-tions in a given population. As a new populationemerges, the density is low, as environmentalresources are available for exploitation, found-ings increase faster than disbandings, and thepopulation expands as it exploits the resourcesin its niche. Increasing density leads to anincrease in legitimacy, knowledge, networksand learning (Aldrich 1999), where legitimacy



includes both cognitive and socio-politicallegitimacy (Aldrich 1999).

Cognitive legitimacy refers to the acceptance of anew kind of venture as a taken for granted featureof the environment. Socio political legitimacyrefers to the acceptance by key stakeholders, thegeneral public, key opinion leaders and governmentofficials of a new venture as appropriate and right.(Aldrich 1999, 230)

However, as density increases further, height-ened competition for resources decreases found-ings (Aldrich 1990). This leads to an inverseU-shaped relationship between organizationaldensity and the rate of foundings. Empiricalevidence from the American brewing industryfound that increasing concentration had a posi-tive but statistically insignificant effect onfounding rates of microbreweries and brewpubs (Carroll and Swaminathan 1992). Inthe American wine industry, the foundingrate of specialist wine farm wineries wasfound to be raised by increasing concentration(Swaminathan 1995).

The type of foundings that will prosper willdepend on where a population is in its growthpattern. Hannan and Freeman (1977) classifythe two types of organization, namely thegeneralist and specialist. If the environment isrelatively stable and the niche is not subject tochanging environmental forces, specialistshave a strategic advantage. Generalists, incontrast, spread their competencies and striveto fit in a wider, more complex environmentthat usually requires them to manage differentstrategies, product lines or even businessessimultaneously. Further types were definedby Brittain and Freeman (1980) includingr-strategists, which have an advantage in theearly stages of density cycle, reproducingrapidly through innovative offerings and mov-ing quickly to obtain resources. By contrastK-strategists, which efficiently use theirresources but are not necessarily quick inseizing opportunities, have a distinctive advant-age under environments with a populationapproaching carrying capacity (Brittain andFreeman 1980), where the carrying capacity

is defined as the maximum population sizethat an environment can support. Consequently,r-strategists are typically replaced by K-strategists as a population matures. By com-bining r- and K-strategist types with Hannanand Freeman’s generalist and specialistforms, Brittain and Freeman (1980) identifiedorganizational forms that demonstrate betterdegrees of fitness, depending on the specificstate of the environment.

Selection

Given the assumption of structural inertia,selection, rather than organizational adapta-tion, drives population-level change. Selectionwill occur as a result of the degree of fitbetween an organization and the environment.

The founding process is dominated by extremeselection forces (Aldrich and Martinez 2001)which discourage potential founders and under-mine the survival of new start-ups. Only abouthalf of these nascent entrepreneurs succeed inholding their place in the niche and make thetransition to a fledgling firm (Reynolds andWhite 1997). As outlined by Delmar andShane (2004) foundings are faced with aliability of newness (Stinchcombe 1965), lowcredibility (Birley 1996) and precarious rela-tions of trust with suppliers and customers anda lack of both cognitive and socio-politicallegitimacy (Aldrich 1999). The strength anddiversity of network ties is crucial for nascententrepreneurs (Aldrich 1999) overcoming theseissues. Finally new ventures, lack the produc-tive routines that established firms have fortransforming resources into products andservices (Delmar and Shane 2004; Nelsonand Winter 1982; Schumpeter 1934). Lack oflegitimacy is even more pronounced for in-novator start-ups when the founding is attempt-ing to create a new population. In this casecollective action through direct ties betweenorganizations in a population and their in-stitutional environments (Delacroix and Carroll1983) is critical to the generation of legitimacy.

Converse to the rate of foundings, there is aU-shaped relationship between density and

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the rate of disbandings. At low levels of den-sity, disbandings are high owing to low levelsof legitimacy. In addition, as discussed above,entrepreneurial learning will also be difficultin the early phase of population growthowing to a lack of successful models to copy(Aldrich 1990). As density increases, foundersvicariously learn from successful firms anddisbanding rates drop. As density increasesfurther, competition intensifies, and the dis-banding rate rises again. This view of courseassumes that disbandings are due mainly toexternal forces, such as legitimacy and com-petition for resources, acting upon the firm.However, as McGrath (1999) argues, entre-preneurs may also choose to exit the industryas each venture is viewed in terms of its over-all learning effects, enhancing the entrepre-neur’s accumulated resource and knowledgebase by ‘reducing uncertainty, increasing vari-ety and expanding the search for opportunity’(McGrath 1999, 15). In this way, a disbandingoccurs as a result of choice or selection at alower organizational level and not owing tothe competitive dynamics at the populationlevel.

As the disbanding rate increases, ecologistsargue that this signals to the nascent entre-preneur that the population has reached itscarrying capacity. However, disbandingsalso free-up resources and create openings inniches that are available to new organizations.Empirical evidence has produced mixed resultson this effect, with some studies failing to findsignificant effects and others reporting a neg-ative impact of prior disbandings (Delacroixand Carroll 1983). However, as Aldrich (1999)noted, this evidence points to the cognitivebiases used by nascent entrepreneurs (Busenitzand Barney 1997), with signals being misin-terpreted and overconfidence magnified bypotential founders (Aldrich 1999).

The effect of population density describedabove can differ for segments of the populationin different ways through resource-partitioning(Carroll 1985). Owing to resource-partitioning,generalists and specialists can coexist (Carroll1984). While the generalists appeal to multiple

market segments, the specialists focus on niches.With increased concentration, generalists com-pete for the centre of the market, while spe-cialists avoid direct competition with them byexploiting niches. Resource partitioning hasbeen documented in studies of newspaper,brewing, music recording, book publishingand microprocessor industries (Delacroix andCarroll 1983). Therefore, by discovering andexploiting opportunities (Kirzner 1997) andfocusing on a specialized niche, a foundingcan avoid the density and competition effectsof other segments within the population.

Retention

Retention and replication occur through thespread of routines and competences via nascententrepreneurs learning vicariously and copyingother prior successful foundings (Delacroixand Rao 1994). In new populations, routinesmust be learnt without having role models,and ties must be established with an ‘environ-ment that does not understand or acknowledgetheir existence’ (Aldrich and Fiol 1994, 648).The lack of convergence on a dominant designin new populations increases the confusionabout what standards should be followed. Asthe numbers of foundings increases, know-ledge of routines also increases within thepopulation, with firms learning vicariouslyfrom each other (Aldrich and Baker 2001)and, through imitation and copying, they con-verge on a dominant design. This, in turn,increases confidence and access to resources(Aldrich 1990) among followers or secondmovers, as they enter the new industry withlower costs, driving the pioneers out ofbusiness (Jovanovic 1982). In addition, thecognitive and socio-political legitimacyof the population as a whole is increased,and opportunities for network contacts alsoincrease with density.

The environmental conditions at the time ofbirth will also have an imprinting effect on thefounding (Stinchcombe 1965). This imprint-ing will have an enduring effect on the firm as‘they tend to retain the characteristics they



acquired at founding over the course of theirlife spans’ (Tucker et al. 1990, 183). Thefounder’s organizational blueprint locks inthe adoption of particular structures shapingthe administrative and managerial intensityof the firms, even after the departure of thefounder (Baron et al. 1999). Baron et al. (2001)argue that their research supports the claimby population ecologists (Hannan andFreeman 1977) that it is disruptive to altersuch blueprints.

While the population ecology perspectivesheds light on the dynamics of competitionand changes in founding and disbanding ratesof types of organization at the populationlevel, it downplays the importance of strategicchoice, intentionality and the detailed mecha-nisms of new venture creation (Aldrich 1999;Astley and Van de Ven 1983; Bedeian 1987).Individual organizations are viewed as uni-form types within a population, ‘cast fromthe same ... mould’ (Winter 1990, 286). Theenvironment is given primacy, and adaptationto environmental change is assumed to occurthrough the replacement of one organizationalform with another (Astley and Van de Ven 1983).By adopting this perspective, the fundamentalprocess of new venture creation is ignored.Therefore, the population ecology perspectiveis only part of the picture and should be usedalongside the strategic choice perspective,giving further insight into the underlyingmechanisms of new venture creation.

Strategic Choice

As described in the previous section, theevolutionary approach adopted by populationecologists assumes that organizations arecast from the same mould, and adaptation orchoice at the level of the individual organiza-tions is downplayed. But as Gartner (1985,697) argued ‘it is not enough for researchersto seek out and focus on some concept ofthe average entrepreneur’. New organizationsevolve through variation, and this individualvariation needs to be studied. Hrebiniakand Joyce (1985) further point out that it is

misleading to classify organizational adaptationsas either managerially or environmentallyderived, and that both strategic choice andenvironmental determinism are independentvariables that can interact to yield differenttypes of organizational adaptation. Therefore,the population ecology perspective is incom-plete and the use of any evolutionary approachmust also incorporate the process of choiceor adaptation at the level of the individualorganization.

The strategic choice perspective in entre-preneurship has developed over the years froma static, generalized focus on entrepreneurialtraits (Low and MacMillan 1988) to appro-aches which focus much more strongly onprocess and context, including entrepreneurialcognition and entrepreneurial learning. Whilethe bulk of entrepreneurship research has beenfocused on the level of the entrepreneur andthe start-up, research using an evolutionaryapproach to develop a firm-level theory of newventure creation has been limited. Therefore,while the evolutionary approach has been usedto examine organizations in general at thestrategic choice level (Burgelman 1990), futureresearch should focus on applying the appro-ach to examine small business adaptation andlearning (Jones and Hecker 2003). Similarly,Freel (1998, 138) argues that evolutionaryeconomics appears to ‘offer greater scopefor comprehending learning at the level of thefirm within a dynamic, process framework’.

As in the population ecology section, a reviewof the evolutionary approach, and indeedpotential use of the approach, within thestrategic choice perspective can be organizedaround the identification of units of selectionand the mechanisms of variation–selection–retention.

Units of Selection

Recent entrepreneurship research has beenfocused more on the behavioural aspects ofentrepreneurs (Davidsson and Wiklund 2001;Ucbasaran et al. 2001), including the way inwhich entrepreneurs think and use heuristics

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in decision-making (Forbes 1999). The focusof this approach is on what the entrepreneurdoes and the actions that lead to the creationof an organization, not who the entrepreneuris (Gartner 1989). Using an evolutionaryapproach, the behaviour of the entrepreneur,the cognitive processes followed and resultantactions taken can be described by replicatorsand interactors.

At the population level, the environmentselects the firm; however, within the firmitself, selection will occur on a number oflevels, including selection by managers, bygroups and by individuals. A number ofauthors adopting an evolutionary approach atthis level have identified different competingdefinitions of replicators and interactors, withthe key unit of selection being the routine.While routines are reserved for collectivebehaviour (Nelson and Winter 1982), a skillor habit refers to the behaviour of an indi-vidual (Becker 2005; Cohen and Bacdayan1994), and is defined as a ‘propensity tobehave in a certain way in a particular class ofsituation’ (Hodgson 2003, 372). Dosi et al.(2000) argue that a hierarchy exists whereindividual skills are the building blocks ofcollective routines, which are in turn the build-ing blocks of organizational capabilities. Rou-tines thus represent the collective, negotiatedskills of a group of individuals. In new ven-tures, the distinction between individual-levelentrepreneurial heuristics, skills and habitsand firm-level routines is somewhat blurred,as the management processes of the businessare inseparable from the actions and experi-ence of the owner (Beaver and Jennings 1996),and organizational learning is synonymouswith the learning at the level of the entre-preneur (Deakins and Freel 1998; Kim 1993)as the entrepreneur interacts with the environ-ment while operating with a small workforce.

To describe further the units of selectionwithin the firm, parallel concepts can be takenfrom other schools of thought in the generaleconomics and business literature. These con-cepts can be classified into three differentschools of thought, as shown in Table 1; the

evolutionary school, the capabilities/routine-based school and the learning school. As withthe evolutionary approach, both the dynamiccapabilities and learning approaches treatactors as boundedly rational (Gavetti andLevinthal 2004). The different interpretationsof each school can be further classified intodifferent ontological levels, which are repre-sented here as the cognitive level, behaviourallevel and action level. The cognitive levelrefers to higher-level heuristics used to iden-tify causal connections between actions andoutcomes, the behavioural level refers tolower-level skills and routines defined asthe propensity to behave in certain ways inresponse to stimuli from the environment, andthe action level refers to the actual set ofactions performed by the individual. At thestrategic choice or firm level of analysis, it isargued here that both cognitive heuristics andbehavioural routines represent the replicatorsof the group as they are inheritable withingroups and between groups, they are subjectto selection, and they mutate through evolu-tion or imitation. The action level, in contrast,represents the interactor.

Replicators

(i) Cognitive level. The cognitive level is anarea largely overlooked by the evolutionaryschool with the focus being mainly at lowerlevel collective behavioural routines. Gavettiand Levinthal (2004) argue that, in addition tobehavioural-level routines, cognitive-levelheuristics also need to be incorporated intothe evolutionary approach. These higher-ordercognitive heuristics preserve a notion of inten-tionality (Gavetti and Levinthal 2004, 1314)and include ‘imperfect cognitive representa-tions’ that actors have of their environmentwhich are used to evaluate ‘off-line’ choiceswhich in turn lead to new learning and theemergence of routines (Gavetti and Levinthal2004). These heuristics act as vicariousselectors which attempt to identify cause–effect linkages and anticipate selection by theenvironment (Rao and Singh 1999; Romanelli



1999). Entrepreneurs use heuristics at thislevel to help make decisions (Busenitz andBarney 1997) and to make inferences thathave not previously been identified (Ucba-saran et al. 2001). The challenge is to identifyreplicators which represent this cognitive levelwhile still remaining ‘faithful to the evolution-ary logic’ (Gavetti and Levinthal 2004, 1314).It is here that the ideas can be borrowed fromboth the capabilities and learning schools.

In the capabilities approach, dynamic capa-bilities are seen as higher-level cognitive rou-tines (Winter 2003) which ‘integrate, build andreconfigure’ lower-level routines and compe-tences to ‘address a rapidly changing environ-ment’ (Teece et al. 1997, 516). These are ‘learnedand stable patterns of collective activity’similar to inheritable routines (Zollo and Winter2002, 340) that give a firm’s management aset of decision options (Winter 2003). Thequestion remains whether the notion of

dynamic capabilities is suited to entrepren-eurial start-ups, as Zollo and Winter (2002, 340)argue that a firm that ‘adapts in a creative butdisjointed way to a succession of crises’ is notexercising a dynamic capability. This disjointed,creative approach to crises is typical in newventure creations; as Freel (1998, 146) pointedout, the term routine ‘seems ill-fitted to theoften dynamic, strategic development of smallfirms’. In addition, the new venture is charac-terized by a small team with the cognitive proc-esses followed being synonymous with anddominated by those of the individual entre-preneur (Deakins and Freel 1998; Kim 1993).Therefore, the collective, stable nature of dynamiccapabilities might appear inappropriate.

The idiosyncratic nature of the new venturecreation process might be better addressedusing the individual-level mental models fromthe learning school. A variety of terms anddefinitions have been used to describe the

Table 1. Comparison of different schools of thought on units of selection

Evolutionary schoolCapabilities/routine-based school Learning school

Replicator I Cognitive level Imperfect cognitive representations (Gavetti and Levinthal 2004)

Organizational capability(Winter 2000)

Frameworks or know-why(Kim 1998)

Vicarious selectors(Campbell 1965; Aldrich1999; Rao and Singh 1999;Romanelli 1999)

Dynamic routines (Pisano 2000)

Tacit knowledge (Polanyi 1967)

Dynamic capability (Zollo and Winter 2002)

Mental-models (Senge 1990)Cognitive element(Johnson-Laird 1983)

II Behavioral level Routines (Nelson and Winter 1982)

Patterns of behaviour, action or interaction (Becker 2005)

Theory-in-use (Argyris and Schon 1978)

Comps (McKelvey 1982) Procedural (Cohen andBacdayan 1994)

Know-how, operationalroutines (Kim 1998)

Ostensive (Pentland andFeldman 2005)

Tacit knowledge(Polanyi 1967)

Static routines (Pisano 2000) Technical element(Johnson-Laird 1983)

Operating routines (Zolloand Winter 2002)

Non-canonical practices(Brown and Duguid 1991)

Interactor III Action level Routines (Nelson and Winter 1982)

Performative (Pentland andFeldman 2005)

Firms (McKelvey 1982)Professional identity (Knudsen 2002)

Patterns of behaviour, actionor interaction (Becker 2005)

Humans and technologies,products and services andthe identity of the firm(Jones 2005)

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schema or mental models (Johnson-Laird 1983)that individuals and groups use at the cogni-tive level. These models include schemata,beliefs and paradigms that provide perspec-tives or frameworks that individuals use to viewtheir world (Nonaka 1994). Senge (1990)describes mental models as deeply held inter-nal models of how things work in the world,influencing an individual’s behaviour due tothe fact that they affect what the individualperceives. Mental models provide the contextin which new information is viewed andinterpreted, and determine how informationis relevant in any given situation (Kim 1993).Mental models can also be collectively sharedat the group level (Kim 1993) giving collec-tive meaning and understanding betweenindividuals (Grant 1994).

In summary, given the propensity of entre-preneurs to use cognitive heuristics and thelack of focus by the evolutionary school inthis area, concepts can be borrowed from thelearning school, and the concept of the mentalmodel can be used, for example, to representthe cognitive replicator of the entrepreneur inthe new venture creation process. As the ven-ture grows and the management team broad-ens, the development of collective mentalmodels may subsequently occur (Kim 1993).This represents an area for further develop-ment in the application of the approach tostudying entrepreneurship.

(ii) Behavioural level. As discussed abovemany evolutionary economists identify behav-ioural routines (Nelson and Winter 1982) orcomps (McKelvey 1982) as replicators in thesocio-economic world. The capabilities schooldescribes routines as ‘recurrent interactionpatterns’ (Becker 2005, 819) or patterns ofbehaviour, action or interactions (Reynaud2005) or static and operational (Pisano 2000;Zollo and Winter 2002). These patterns ofbehaviour involve multiple actors linked to-gether via communication and/or authority rela-tions (Cohen and Bacdayan 1994). Routinesact as repositories for tacit knowledge (Becker2004) and are a form of procedural memory

(Cohen and Bacdayan 1994, 554), where ‘pro-cedural knowledge’ is defined as the know-ledge relating to how things are done, whichis relatively inarticulate and encompassesboth ‘cognitive and motor activities’. Withincreasing practice and familiarity, the routinebecomes easier to do, but increasingly tacitand difficult to verbalize or explain (Pentlandand Feldman 2005). In the new venture crea-tion process, the entrepreneur must build ateam and create an organizational boundarythat will ensure the creation and perpetuationof organizational routines at the group level(Aldrich 1999).

Routines are collective phenomena andinvolve multiple actors (Becker 2004; Teeceet al. 1997) in ‘a series of conditional, inter-locking, sequential behaviours’ (Hodgsonand Knudsen 2004, 290). They depend on theinterconnections between these multipleactors and their actions to form a pattern thatis recognized and talked about by individualsas a routine (Pentland and Feldman 2005),and individuals must learn their parts withinthese collective routines (Cohen and Bacdayan1994). Routines provide mutual consistencybetween individual activities, giving actorsknowledge of the behaviour of others, uponwhich they can base their own decisions(Becker 2004). As routines involve multipleactors, their smooth running is due to animplicit truce established between individuals(Nelson and Winter 1982), with the stabilityof recurrent activity being explained by under-lying motivational arrangements between indi-viduals (Becker 2004) and political conflictbeing very much part of many routines.

The definition of firm-level replicators fornew ventures becomes difficult given the emer-gent nature of the firm. At the initial stages offounding, the cognitive-level process will bedominated by the individual entrepreneur. Asthe firm grows and an organizational bound-ary is established to incorporate a small teamof employees, lower-level collective routinesemerge and develop. As the firm continues togrow and additional management arrives, thecognitive processes become less dominated



by the individual entrepreneur, and collectivecognitive heuristics emerge. Therefore, in thenascent small firm, it is argued here that theconcepts of individual-level entrepreneurialskills and cognitive heuristics better representthe firm’s replicators, with more collectiveroutines and dynamic capabilities being reserveduntil the firm has grown to such a scale that ateam of employees and managers is estab-lished and protected within the boundaries ofthe growing firm (Aldrich 1999). Given thesmall group of individuals in start-ups and theloose connections between the entrepreneurand the network of contacts, it will take timefor stable collective organizational routines tobecome established. As the small businessgrows, collective routines and heuristics startto become established within the growingteam as different individual skills, habits andambitions are reconciled, resulting in morestable, collective behaviour. The distinctionbetween the entrepreneur, the team of em-ployees and the arrival of new managementblurs and confuses the identification of thereplicators responsible for the actions of thefirm. This represents an area for further devel-opment in the application of the approach tostudying entrepreneurship.

Interactors

In the evolutionary school of thought, the actionlevel is represented by interactors. Howeveras Jones (2005, 18) points out, it is difficult toascertain from the literature exactly ‘whichactivities are performed outside the firm andtherefore interact with the environment andwhich are performed inside and don’t interactwith the environment?’ Nelson and Winter(1982) proposed that routines as well as beingreplicators are also interactors, given that theyact as both behavioural dispositions and actualbehaviours. However, as both Knudsen (2002)and Jones (2005) point out, this results in adefinitional problem, which is unworkablefrom an evolutionary perspective. In Becker’s(2005, 819) definition of routines as ‘recurrentinteraction patterns’, or patterns of behaviour,

action or interactions (Reynaud 2005), there islikewise an unclear distinction between thebehavioural and action level. This distinctioncan be clarified by Pentland and Feldman (2005,796) who define the performative aspect of theroutine as the ‘actual performances by specificpeople, at specific times, in specific places whenthey are engaged in what they think of as anorganizational routine’, as opposed to thebehavioural level or ostensive aspect of routineswhich are abstract or generalized patternsthat ‘participants use to guide, account for andrefer to specific performances of a routine’(Pentland and Feldman 2005, 795).

As noted above, some argue that the firm isthe interactor (Aldrich 1999; McKelvey 1982)containing bundles of routines or polytheticgroups of competences. At a lower hierarchicallevel, Knudsen (2002) argues that the social andprofessional identity of organization membersis the interactor, with organization membersbeing the carriers of replicating routines. Indeed,the determination of the interactor will dependon the level of selection. In population ecol-ogy, selection occurs at the level of the organ-ization depending on the degree of fit betweenthe firm and the environment. But within thefirms, there is a nested hierarchy of selection.In this way, the selection of habits by individ-uals is nested within the selection of routinesby groups, which in turn is nested within theselection of groups by managers (Miner 1994),and which in turn is nested within the selec-tion of firms by competitive markets (Hodgsonand Knudsen 2004). Therefore, it could beargued that the definition of the interactor willdepend on the micro-environment within whichselection occurs, namely the set of actionsperformed by individuals, groups or firms.

There are many overlaps between the evolu-tionary mechanisms of variation, selectionand retention and other process approachesadopted in entrepreneurship research such asentrepreneurial cognition and learning. Indeed,Jones (2005, 20) argued that small firm learn-ing is ‘subsumed across the ... evolutionaryprocesses of variation, selection and retention’.Several authors argue that entrepreneurial

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learning is predominantly learning by doing(Cope 2005; Deakins and Freel 1998;Gartner 1984; Minniti and Bygrave 2001;Politis 2005) as knowledge about relevantcontacts, suppliers, market opportunities andcompetition is created through the transforma-tion of experience. Indeed, it could be arguedthat the liability of newness (Stinchcombe1965), the lack of market credibility (Birley1996) and the negotiated nature of entrepre-neurial networks (Sarasvathy and Dew 2005)makes off-line cognitive inferences aboutcause–effect linkages very difficult. In this way,entrepreneurial learning is situated withinnetworks (Dutta and Crossan 2005) as entrepre-neurs learn from agents including suppliers,customers, banks, staff, family and peers (Gibb1997, 2002). In this action learning approach,individuals start with concrete experience andthen move on to reflective observation, abstractconceptualization and active experimentation(Kolb 1984), continually correcting the mis-alignments between espoused theory (whatindividuals or organizations say they do) andtheory-in-use (what individuals or organizationsactually do) (Argyris and Schon 1978). Asdescribed below, the action learning approachparallels the evolutionary mechanisms ofvariation, selection and retention.

Variation

Variation in replicators can be both blind andintentional (Sammut-Bonnici and Wensley 2002).The first source is that of chance variation andconsequent random survivor selection (McKelvey1982; Nelson and Winter 1982). It occurs inde-pendently of environmental or selection pressures,with McKelvey (1982) suggesting that perhaps90% of organizational variations are blind.

Intentional variation, in contrast, occurswhen entrepreneurs actively seek to solveproblems by coming up with alternatives. Itshould be noted that this can lead to variationin both behavioural routines and cognitiveheuristics. Indeed, it is the ability to createnew means–ends relationships that is charac-teristic of the entrepreneur (Kirzner 1997)

during the new venture creation process. Thisvariation of cognitive-level heuristics parallelsthe abstract conceptualization and activeexperimentation stages in Kolb’s action learn-ing cycle (Kolb 1984). Such generative learn-ing enables entrepreneurs ‘to abstract andgeneralize across contexts, to recognize pat-terns and build relationships between differentsituations and events’ (Cope 2005, 386), aslearning becomes inferential and vicarious,generating new knowledge through experi-mentation and creativity (Aldrich 1999).

Intentional variation can occur througheither imperfect imitation of the observablesuccess of other firms or through experi-mentation and innovation (Burgelman 1991;Miner 1994). In the former, nascent entrepre-neurs start small reproducer organizations inestablished populations, learning vicariouslyfrom early successful foundings. It shouldbe noted however, that intentional variationthrough imitation can also result in uninten-tional variation (Aldrich 1999) when causalambiguity exists as to the effects of the copiedroutines and resultant outcomes (Madsenet al. 1999). While the vast majority of start-ups are reproducers (Aldrich and Martinez2001), some innovator start-ups deliberatelydepart from established organizational formsand can thus alter an existing population orindeed create a new one (Schumpeter 1934;Tushman and Anderson 1986). Freel (1998)argues that the dichotomy between experi-mentation and imitation variation is over-simplistic, with imitative behaviour involvingan element of experimentation and vice versa.

The effectual view of entrepreneurship viewsthe founding process as a series of negotiatedcommitments with a network of contacts. Thevariation that is created is unpredictable, asactors cannot predict in advance the motivesof those they interact with, and depends onthe actors involved and the commitments theymake (Sarasvathy and Dew 2005). In thisvariation process, opportunities are formedthrough bounded cognition, partial knowledgeand chains of commitment between networkactors (Sarasvathy and Dew 2005).



Selection

Selection will occur on at least two levels:managerial selection of routines within firmsand competitive selection of firms in markets(Simon 1962). The former process is nestedwithin the latter (Knudsen 2002), as both pro-cesses occur on different hierarchical levels.Rao and Singh (1999, 75) argue that ‘externalselection pressures are more likely to be pro-minent at the level of the entire organization,whereas internal selection forces are likely todominate over organizing elements’. Entre-preneurs use cognitive-level vicarious selectorsin the internal selection process to anticipateselection by the environment (Campbell 1965;Miner 1994; Rao and Singh 1999), with thevicarious representations of the environmentbeing based on past experience (Aldrich 1999).In this way, the role of the entrepreneur iscompared with that of the breeder in artificialselection (Knudsen 2002). The better adaptedthe vicarious selector, the closer the matchbetween external and internal selection pro-cesses. The selection process thus spans theconcrete experience, reflective observation andabstract conceptualization stages in Kolb’saction learning cycle (Kolb 1984).

As noted above, these vicarious selectors canthemselves undergo variation, as new means–ends relationships are created (Kirzner 1997)and can be selected by another selector at ahigher hierarchical level (Rao and Singh 1999;Romanelli 1999). In this way, internal selectionmay be a significant dynamic capability (Ingramand Roberts 1999) influencing the developmentof organizational capabilities over time. Theopportunity discovery and exploitation (Shaneand Venkataraman 2000) approach to entrepre-neurship assumes that the entrepreneur’s pre-dicted vision of the market acts as a vicariousselector. The eventual success of a venture willdepend on how accurate this vicarious repre-sentation of the market is and then how wellthe entrepreneur ‘executes strategies based onthat vision’ (Sarasvathy and Dew 2005, 544).

Developing effective vicarious selectors ismade more difficult given the causal ambi-

guity between routines, the expression of theseroutines in a firm’s actions and resultantexternal selection by the environment (Aldrich1999). Drawing from the learning school,superstitious learning (March and Olsen 1975;Miner and Mezias 1996) can occur in somecases where incorrect inferences are drawnabout the link between organizational actionand environmental response. This is furtheraggravated in the presence of noise in thefeedback signal or very rapid learning of earlyfeedback signals leading to inappropriate con-clusions (Miner and Mezias 1996). A diffi-culty thus exists in determining a causal linkbetween the underlying replicator, its expres-sion in action through the firm’s interactor andthe resultant feedback from the environment.

Vicarious selectors are in turn affected bycognitive biases (Busenitz and Barney 1997),where positive outcomes are attributed to theactions of the entrepreneur and negative out-comes to external factors beyond their control(Baron 1998). This bias reinforces positivefeedback from the environment, leading tooverconfidence. This in turn influences thedecision-making processes and internalselection mechanism. Following success, thisoverconfidence can be self-reinforcing, withentrepreneurs exploiting current activitiesrather than exploring new ones (March 1991),which in turn results in less variation (Miller1999). The greater the effect of cognitivebiases, the less strong the match betweeninternal and external selection processes.

Retention

Retention will include both the replication ofsuccessful routines within the firm itself andthe replication of successful routines from otherorganizations. The latter has been discussed inthe population ecology section. Replication ofroutines is difficult for a number of reasons(Teece et al. 1997). As described above, rou-tines are collective, involving multiple actorsin truce-like patterns of interaction. Therefore,they are context specific and can be so complexthat the firm itself, let alone its competitors,

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does not understand them (Teece et al. 2000).In addition, routines involve tacit knowledgeand, the broader the scope of knowledgeintegrated within a routine, the greater thecausal ambiguity and the more difficult im-itation becomes (Grant 1994). This may resultin outsiders copying the wrong variations(Aldrich 1999). These difficulties mean thatreplication will involve both a process ofexploration to determine which routine tocopy and subsequent exploitation of theroutine identified (March 1991; Winter andSzulanski 2001), spanning all stages ofKolb’s learning cycle.

However, it should be noted that replicationof routines occurs through the replication ofmanifest behaviour at the action level, ratherthan of the particular ‘software’ of the routinesthemselves (Hodgson and Knudsen 2004,288). In this way, transmission of routinesfrom one group to another leads to an imper-fect copy of each routine, which may lead to‘additional behavioural characteristics thatdo not relate’ to the original routine beingtransmitted as well (Hodgson and Knudsen2004, 288).

While behavioural skills and cognitiveheuristics are individual, collective routinesand heuristics can also be built at the groupand organizational level (Kim 1993). Giventheir context-specific, tacit nature, replicationof successful routines and heuristics withinthe growing group of employees will occurthrough the ‘relatively passive experientialprocesses of learning by doing’ (Zollo andWinter 2002, 340). As these replicators aretacit, they must be first made explicit in orderto be shared between individuals (Nonaka1994). This first process involves the use ofmetaphors, dialogue and stories to articulate aperson’s perspective (Crossan et al. 1999;Dixon 1999; Nonaka 1994). This is followedby the negotiation of shared understanding(Crossan et al. 1999) through a socializationprocess whereby the group of individualsshares experiences and perspectives (Nonaka1994). In this way, competing interpretationsare resolved through the negotiation process

of creating collective routines and heuristics.This socialization process also involves be-coming a full participant, and indeed a differ-ent person as a new identity and meaningstructure is constructed within the context ofthe group (Lave and Wenger 1990). In thismanner, as the small firm grows, successfulreplicators are learnt by the group of employ-ees and retained and protected within theorganizational boundary (Aldrich 1999).

Discussion

This paper started by reiterating Low andMacmillan’s (1988, 157) call for more theory-driven research in entrepreneurship, a moveto ‘explain rather than merely document theentrepreneurial phenomenon’ and for morefocus on process and context. It then reviewedthe application of the evolutionary approachto entrepreneurship research, namely, throughthe fields of population ecology and strategicchoice. While population ecology and strate-gic choice offer interesting perspectives onentrepreneurship, there are limitations associ-ated with each. Population ecologists arelargely silent on the role of individual action,while strategic choice approaches are silent onthe role of population evolution (Ginsberget al. 2001). It is argued that the evolutionaryapproach offers entrepreneurship a theoreticalbasis for future research which encompassesboth the population ecology and strategicchoice perspective. Both perspectives are look-ing at one and the same process from differentlevels of analysis.

Why Use an Evolutionary Approach?

The evolutionary approach reflects the recentfocus in entrepreneurship research towardsprocess and context such as entrepreneurialcognition and entrepreneurial learning (Ucba-saran et al. 2001). The evolutionary approachcan be seen to build upon the work of anumber of authors following an entrepreneur-ial cognition approach. Thus it will build onthe work of Busenitz and Barney (1997) by



specifically identifying not only the routinesand cognitive heuristics involved in decision-making, but also the process by which theseroutines and heuristics evolve over time.Moreover, the biases and errors referred to byBaron (1998) can be incorporated into theinternal selection processes adopted by theentrepreneur. Likewise, there is a lot of simi-larity between the processes of entrepreneur-ial learning and the mechanisms of variation,selection and retention (Miner 1994). Jones(2005, 20) proposed that ‘small firm learningis subsumed across the ... evolutionary proc-esses of variation, selection and retention’.In essence, tacit knowledge is the focus ofboth processes, either through the evolutionarymechanisms or the learning process. Bothprocesses also involve feedback from theexternal environment, and variation or crea-tion of new knowledge. And, in this sense,learning is very much an integral part of theevolutionary process.

However, an evolutionary approach isbroader than both the entrepreneurial cogni-tion and learning-based approaches, becauseit allows simultaneous multi-level analysesof the new venture creation process, giving abroader understanding of the overall processthan a single level analysis alone (Aldrich andFiol 1994). This advantage of the evolutionaryapproach allows us to undertake both macroand micro analysis with a ‘desirable degree ofharmony between the methodologies employedand the theories developed’ (Freel 1998, 139).

It is seen in the above review that evolu-tionary processes span multiple levels ofanalysis nested in a hierarchy (Madsen et al.1999). In this way, the selection of habits byindividuals is nested within the selection ofroutines by groups, which in turn is nestedwithin the selection of groups by managers(Miner 1994), and which in turn is nestedwithin the selection of firms by competitivemarkets (Hodgson and Knudsen 2004). Theprocesses of variation, selection and retentionwork simultaneously and uniquely at eachlevel in this nested hierarchy (Anderson 1999;Van de Ven and Grazman 1999). Indeed, Van

de Ven and Grazman (1999) argue that man-agers, in their effort to optimize fitness at onelevel, may generate both positive and negativeresults at other levels. In this way, a selfishmanager in making a self-serving choice,may reduce overall fitness at other levels.Rosenkopf and Nerkar (1999) argue that,while higher-level outcomes frequently influ-ence subsequent lower-level evolutionary acti-vities through downward causation (Campbell1974), the relationship between levels and therelevance of a nested evolutionary model isfurther increased by environmental resourcescarcity. It is within this latter context of re-source scarcity that most new ventures operate,and thus any process explanation must in-clude both upward and downward causation(Anderson 1999). Therefore, the discussion isnot a simple matter of macro versus micro,or population ecology versus strategic choice,but an intricate nesting of levels each operat-ing under different variation, selection andretention processes.

Future Research

Models derived from an evolutionary appro-ach are algorithmic, specifying if–then pathswhere particular outcomes will occur if certainconditions are met (Aldrich 1999). To explainthese if–then paths, ideas from several otherapproaches, such as the learning-based appro-ach, capabilities approach or complexity sciencemay be drawn. Indeed the transfer of ideasacross disciplines may stimulate creativetheoretical insights in both (Aldrich 1999).Aldrich (1999, 74) argues that the evolution-ary approach ‘borrows selectively’ from otherapproaches ‘as befits its eclectic nature’. How-ever, this assumes that the fundamental claimsand assumptions underlying each approachare not mutually contradictory (Slife andWilliams 1995). Future research which aimsat cherry-picking insights from other disci-plines needs to address these concerns.

From the general evolutionary principles ofvariation, selection and retention reviewed inthis paper, detailed causal explanations of

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evolutionary processes need to be developed.Indeed, Hodgson and Knudsen (2004) arguedthat future research should focus both on thedevelopment of theory and detailed empiricalinvestigation, where the ‘success of the latterdepends to a large degree on success in theformer, as all empirical enquiry is promptedand framed by questions of theory’ (Hodgsonand Knudsen 2004, 303). This would addressthe concerns of Low and MacMillan (1988, 155)who called for more theory-driven entrepre-neurship research and to ‘pursue causality moreaggressively’. Future research directions in thearea can be broken down into three broad areas:

(1) Development of firm-level theory: Futureresearch should attempt to describe theunits of selection (Becker 2004) and causalmechanisms underlying the processes ofvariation, selection and retention (Becker2004; Hodgson and Knudsen 2004) atthe level of the firm during the process ofnew venture creation. There are still veryfew attempts at actually specifying thecausal mechanisms through whichroutines are varied, selected, and retained(Becker 2004). There is also disagree-ment over the units of selection and, asargued above, the definition of replicatorsand interactors is linked to the level ofanalysis. In particular, future researchshould describe the changing nature ofreplicators and interactors at the cogni-tive, behavioural and action levels as thenew venture emerges and grows. Forinstance, this theory could shed light onthe emergence of skills and heuristics atthe entrepreneurial level, followed by theemergence and development of behaviouralroutines among employees at the grouplevel and further collective cognitive heu-ristics as the management team broadens.Indeed, firm-level theory could investi-gate the possibility of heuristics androutines developing within the networkof contacts surrounding the new venture.

(2) Development of multi-level theory: Lowand MacMillan (1988) argued that entre-

preneurship occurs across five levels ofanalysis: individual, group, organization,industry and society. They suggest thatmulti-level studies can produce importantinsights about entrepreneurship. Futureresearch should thus include multiplelevels of analysis, and the interactionsbetween organizational and populationlevel hierarchies would shed further lighton the evolutionary process. Similarly,the emergence of individual and collec-tive routines and heuristics and the inter-action between them as the new venturegrows need to be resolved within a nestedhierarchy. In particular, the linkages acrossthese levels of the organizational hierarchyneed to be developed further (Gavetti andLevinthal 2004). Multi-level analysis couldalso shed light on the nature of firm exit(McGrath 1999), where selection at lowerlevels can take precedence over higher-level environmental selection.

(3) Empirical investigation: The methodo-logical approach adopted will dependto a large degree on the level of analysisin the research question. At one extreme,replicators could be treated like ‘blackboxes’ (Pentland and Feldman 2005,800) with their internal structure largelyoverlooked and ‘the inputs and outputs ofthe routine as a whole’ being studied.Pentland and Feldman (2005) noted thatthis was the most common approach instudying routines, enabling researchers touse statistical techniques. However, suchan approach can lack the richness ofinformation needed to understand thedynamics of the evolution of replicators.At the other extreme, empirical observa-tions can delve into the internal complex-ity of replicators. Experimental studies(Cohen and Bacdayan 1994) can isolateexplanatory factors and establish cause–effect relationships. However, given thedifficulty in recreating the complexity ofa real organization under experimentalconditions, this approach can fail toobserve the behaviour of individuals in



context. The inevitable influence theexperiment will have on interviewees andthe manipulation of independent varia-bles further compromises this ecologicalvalidity. As Costello (1996, 597) noted, itis important to study the detailed behav-iour of firms so that it reflects ‘the com-plexity of the world as seen by them andnot according to the researchers ownpredetermined interpretations’. This focuson reflecting the contextual and processcomplexity of entrepreneurial behaviourincreases the emphasis on longitudinalethnographic studies (Davidsson et al.2001; Freel 2000), with the need to studythe entire entrepreneurial team throughthe evolutionary process of new venturecreation. While these ethnographic studiesare strong on detail (Feldman 2000), theyinvolve immense effort and time costs.Using longitudinal ethnographic studies,researchers need to operationalize the con-cepts of interactors and replicators, andtrack these through the evolutionary mech-anisms of variation–selection–retention(Burgelman 1991). The approach adoptedin gathering data must similarly be appro-priate to capture the intended detail posedby the research. While observations can beused to study actions manifest in the firm’sinteractors, interviews are more appropri-ate for tapping into the internal structureof the replicators (Pentland and Feldman2005). Given the complexity and explor-atory nature of describing cognitive proc-esses, an emic analytical approach viaface-to-face interviews would be moreappropriate, allowing flexibility to bemaintained and the elaboration of keyissues. As noted above, the success ofthis empirical work will depend on thedevelopment of firm-level theory.

Conclusion

As Aldrich and Martinez (2001, 52) point out,‘the field of entrepreneurship has moved awayfrom the figure, characteristics and intentions

of entrepreneurs themselves to concentratemore on their actions and outcomes’, achiev-ing a ‘more evolutionary view of entrepre-neurial activities’. They further stress theneed to understand the interaction of strategicchoice and environmental selection, and stressthat ‘strategies are constructed, molded andadapted in processes of interaction with envi-ronments. Entrepreneurs have the potential oflearning during the process of constructingtheir firms, based on feedback from theiroutcomes. It is this feedback process that weneed to understand’ (Aldrich and Martinez2001, 52). It is proposed that an evolutionaryapproach is a sound basis for the developmentof theory to study the firm-level process ofnew venture creation. An evolutionary appro-ach addresses the research dimensions pro-posed by Low and Macmillan (1988) of pur-pose, theoretical perspective, focus, level ofanalysis, time frame and methodology. More-over, this approach offers more than a cogni-tion or learning-based process approach byencompassing both the population ecology(population level) and strategic choice (organ-izational level) perspective of entrepreneurialresearch, and the resultant interactions betweenboth hierarchies, giving valuable insight intothe same overall evolutionary process.

Acknowledgement

The author would like to thank the editor andthe two anonymous reviewers for their detailedand valuable feedback in the development ofthis paper.

Note

1 Address for correspondence: Lincoln BusinessSchool, University of Lincoln, Lincoln, LN6 7TS,UK. Tel.: +44 (0)1522 886992; e-mail: [email protected]. There are no prior or pending pres-entations of this paper.

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Dermot Breslin is from the Lincoln BusinessSchool, University of Lincoln, Lincoln, LN67TS, UK